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Business News/ Insurance / What do IRDAI’s draft regulations on insurance policies mean for policyholders?

What do IRDAI’s draft regulations on insurance policies mean for policyholders?

IRDAI has recommended an extension of the free look period for life and health insurance policies. Additionally, the insurance regulator has drafted regulations consolidating separate regulations.

IRDAI's drafts regulations for insurance companies. Premium
IRDAI's drafts regulations for insurance companies.

The recent proactive stance on consumer protection by the Insurance Regulatory and Development Authority of India (IRDAI) represents a noteworthy development. The draft regulations it has introduced carry potential implications that could be advantageous for policyholders.

The document, named “Insurance Regulatory and Development Authority of India (Protection of Policyholders’ Interests and Allied Matters of Insurers) Regulations, 2024", brings together eight separate regulations into a unified and comprehensive framework.

Extended free-look period

The free-look period for reviewing policies will be extended to 30 days from the date of receiving the policy document, irrespective of the mode of acquisition. The noteworthy change of extending the free-look period to 30 days upon receiving policy documents, applicable across all acquisition methods (online, physical, etc.), holds potential advantages for consumers.

Initially, policyholders now have an increased duration for review. This additional time enables policyholders to meticulously assess the policy details, encompassing coverage, exclusions, terms, and conditions, before arriving at a final decision.

Instead of rushing through the policy documents, policyholders can now make well-informed decisions. This duration allows them to compare policies from different companies and select the option that aligns best with their needs, potentially resulting in more informed choices.

There is a diminished likelihood of impulsive purchases. An extended timeframe may help deter rushed decisions influenced by incomplete information or pressure tactics.

Policyholder or nominee details mandated

IRDAI suggests the compulsory gathering of policyholder or nominee information at the proposal stage to streamline the electronic transfer of premium refunds. This is yet another intriguing provision in IRDAI’s endeavours to streamline processes and improve the consumer experience.

Presently, the collection of policyholder/nominee information for electronic refunds may be optional or occur post-issuance of the policy. The IRDAI’s proposal mandates obtaining this information during the proposal stage. The objective is to guarantee that insurers possess all essential details for promptly and directly processing refunds into the policyholder’s or their nominee’s account. Digital transfers are typically considerably swifter compared to conventional refund methods such as cheques. This modification has the potential to substantially decrease the waiting time for policyholders, especially in cases like policy cancellation where refunds are warranted.

Gathering this information in advance eliminates the necessity for policyholders to pursue paperwork or furnish details later merely to obtain a refund. The likelihood of mismatches or errors in bank information is minimized, as the data is gathered and verified early in the process.

Life insurance policy sans nomination withheld

Life insurance policies will not be issued by the insurer unless a nomination is obtained, and the registration of the nomination will incur no additional cost. The IRDAI’s proposition to make nomination mandatory for life insurance policies and facilitate its registration without any associated costs is designed to enhance policyholder protection and streamline the claims process.

Requiring nomination ensures that the designated beneficiary of the policyholder receives the death benefit in the event of their passing. This safeguard shields dependents or specified recipients from possible disputes or delays in obtaining the entitled benefits.

This eliminates the risk of the policy proceeds going unclaimed in the absence of a nominated beneficiary. The cost-free registration of the nomination alleviates a potential financial burden for policyholders, enhancing the accessibility and user-friendliness of the process.

A registered nominee streamlines the claims process for beneficiaries, potentially reducing delays and complications in obtaining the life insurance payout. It is crucial to ascertain whether the proposal permits changes in nomination during the policy term and if specific formalities are necessary for such modifications. Policyholders require clear and readily available information about the nomination process, covering its purpose, advantages, and potential consequences of not designating a nominee.

Nomination essential during issuance and renewal

Insurance companies, whether offering general or health policy coverage, are required to secure nominations both at the initiation of new policies and during the renewal process. The argument advocating that general and health insurance firms should secure nominations both when issuing new policies and during renewals holds considerable merit.

A nomination guarantees that the designated recipient receives the policy benefits, providing financial security during challenging times. In the absence of a nominee, the claims process can become more intricate and time-consuming, possibly causing delays in accessing essential funds.

Designating a clear nominee prevents confusion and potential disputes among family members or dependents regarding the rightful recipient of the benefits. This accelerates the claim settlement process for the insurance company. Encouraging nominations during renewal encourages policyholders to reassess their beneficiaries and make necessary updates in response to life changes such as marriage, birth, or shifts in relationships.

Policies to be offered in digital format

Policies with a sum insured surpassing 100 or those with a single or annual premium amounting to no less than 10 will be provided to customers in electronic format, irrespective of their initial receipt in electronic or physical form. This recent proposal from IRDAI aims to foster paperless transactions and promote environmental sustainability within the insurance sector.

This additional regulation applies to both new and existing policies issued by general and health insurance companies in India. Policies exceeding a sum insured of 100 or having a single or annual premium of no less than 10 must be compulsorily provided in electronic format. This requirement extends to the renewals of existing policies meeting the specified criteria, regardless of whether the initial policy document was received in electronic or physical form.

The objective of this initiative is to improve environmental sustainability by minimizing paper usage, enhance efficiency and convenience for both policyholders and insurers through easier access to policy documents, and augment transparency and security by furnishing readily accessible and tamper-proof electronic records.

Allowing insurers to establish foreign branches

Insurers that meet defined solvency ratios, showcase profitability in three of the last five years, and maintain a satisfactory track record are now eligible to establish foreign branches, including offices at the International Financial Services Centres Authority (IFSCA). Furthermore, the regulator has eliminated the specified returns requirement for foreign branches.

The requirements for establishing overseas branches encompass:

  • Financial well-being: Insurance companies need to satisfy designated solvency ratios, demonstrating their capacity to fulfill financial commitments.
  • Profitability: It is essential to exhibit profit in a minimum of three out of the last five years, guaranteeing financial stability.
  • Business history: Upholding a commendable track record is vital, showcasing responsible business practices.

Nevertheless, this is a newly suggested plan and is contingent upon ultimate approval and execution by the IRDAI. The intent behind this initiative by the IRDAI is to facilitate the global expansion of Indian insurance firms, all while ensuring the maintenance of financial stability and responsible business practices.

Insurers asked to disclose details of outsourcing

The IRDAI suggests that insurance companies incorporate essential disclosures concerning outsourcing in their annual reports. The significance of transparency in outsourcing arrangements for insurance companies is emphasized by the IRDAI. Although explicit mandates for disclosures in annual reports are not imposed, the IRDAI provides guidelines and regulations that encourage such practices.

The advantages of providing information in annual reports encompass:

  • Enhanced transparency: Policyholders acquire visibility into the extent and nature of outsourced activities, promoting trust and confidence.
  • Enhanced accountability: Disclosures prompt insurers to meticulously choose and oversee service providers, potentially resulting in higher quality services.
  • Improved risk management: Through comprehension of outsourced activities, stakeholders can more effectively evaluate potential risks linked to dependence on external providers.

While not obligatory, incorporating pertinent disclosures about outsourcing in annual reports is consistent with good governance practices and fosters transparency within the insurance industry.

Policyholders may find it difficult to fully comprehend complex insurance contracts within a limited timeframe. Extending the free-look period provides more time to thoroughly review policy terms, comprehend coverage details, and seek advice from experts for clarification. The guidelines guarantee transparency and foster trust. Transparency is instrumental in building greater trust within the insurance industry. Extending the free-look period showcases a dedication to customer satisfaction and ethical practices.



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Published: 27 Feb 2024, 11:07 AM IST
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